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Agencies instruct servicers to pause foreclosures while HAF assistance is available
On May 6, the Secretaries of HUD, Department of Veterans Affairs, Department of Agriculture, and Treasury announced that servicers of federally-backed mortgages should pause pending foreclosure proceedings while assistance is available under the Homeowner Assistance Fund (HAF). President Biden’s American Rescue Plan established HAF to provide approximately $10 billion in financial support for families affected by the Covid-19 pandemic. According to the announcement, pausing pending proceedings is considered “a vital step towards keeping families in their homes as they receive assistance through the HAF program and is consistent with Congress’s intent in putting in place the HAF program to protect vulnerable homeowners.” The Secretaries encourage homeowners and servicers to continue collaborating on loss mitigation options so that homeowners eligible for assistance can choose “the best path to staying in their homes and fully utilize available resources.” They also “strongly encourage servicers to offer these loss mitigation options to borrowers who are struggling to make their mortgage payments, including those who are eligible for HAF funding.” The announcement further noted that, among other things, Treasury is urging HAF program administrators to ensure that their programs expedite handling of applications from homeowners with pending foreclosure proceedings, and to develop expedited procedures for handling homeowners with immediate threats to housing stability, in addition to supporting homeowners who may benefit from the agencies’ loss mitigation options.
FHFA: SCIF mandatory for loans sold to GSEs
On May 3, FHFA announced that Fannie Mae and Freddie Mac (GSEs) are requiring lenders to use the Supplemental Consumer Information Form (SCIF) as part of the application process for loans that will be sold to the GSEs. According to the announcement, the SCIF is intended to collect information on the borrower’s language preference, and on any homebuyer education or housing counseling that the borrower received, so that lenders can increase their understanding of borrowers’ needs throughout the home buying process. The changes will require lenders to present the SCIF questions to borrowers and to report any data collected from the SCIF to the GSEs purchasing the loan. Lenders will be required to adopt these changes and reporting requirements for loans with application dates on or after March 1, 2023. The announcement also noted that response by borrowers on the preferred language question in the SCIF will be voluntary. The SCIF will be available via Mortgage Translations later this summer.
FDIC releases March enforcement actions
On April 29, the FDIC released a list of administrative enforcement actions taken against banks and individuals in March. During the month, the FDIC issued 13 orders consisting of “six orders terminating consent order, one order to pay civil money penalty, five Section 19 orders, and one order of termination of insurance.” Among the orders is a civil money penalty imposed against a Kentucky-based bank related to alleged violations of the Federal Deposit Insurance Act for allegedly “deceptively advertising interest rates and fees for residential mortgage loans as the lowest on the market, with a promise of a ‘best rate guarantee,’ comparative shopping for such rates, and lower rates due to the bank’s fee structure.” The order requires the payment of a $425,000 civil money penalty.
CFPB issues spring supervisory highlights
On May 2, the CFPB released its spring 2022 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of auto servicing, consumer reporting, credit card account management, debt collection, deposits, mortgage origination, prepaid accounts, remittances, and student loan servicing. The report’s findings cover examinations completed between July and December 2021. Highlights of the examination findings include:
- Auto Servicing. Bureau examiners identified instances of servicers engaging in unfair, deceptive, or abusive acts or practices connected to wrongful repossessions, misleading final loan payment amounts, and overcharges for add-on products.
- Consumer Reporting. The Bureau found deficiencies in credit reporting companies’ (CRCs) compliance with FCRA dispute investigation requirements and furnishers’ compliance with FCRA and Regulation V accuracy and dispute investigation requirements. Examples include (i) both CRCs and furnishers failed to provide written notice to consumers providing the results of reinvestigations and direct dispute investigations; (ii) furnishers failed to send updated information to CRCs following a determination that the information reported was not complete or accurate; and (iii) furnishers’ policies and procedures contained deficiencies related to the accuracy and integrity of furnished information.
- Credit Card Account Management. Bureau examiners identified violations of Regulation Z related to billing error resolution, including instances where creditors failed to (i) resolve disputes within two complete billing cycles after receiving a billing error notice; (ii) reimburse consumers after determining a billing error had occurred; (iii) conduct reasonable investigations into billing error notices due to human errors and system weaknesses; and (iv) provide consumers with the evidence relied upon to determine a billing error had not occurred. Examiners also identified Regulation Z violations connected to creditors’ acquisitions of pre-existing credit card accounts from other creditors, and identified deceptive acts or practices related to credit card issuers’ advertising practices.
- Debt Collection. The Bureau found instances of FDCPA and CFPA violations where debt collectors used false or misleading representations in connection with identity theft debt collection. Report findings also discussed instances where debt collectors engaged in unfair practices by failing to timely refund overpayments or credit balances.
- Deposits. The Bureau discussed violations related to Regulation E, which implements the EFTA, including occurrences where institutions (i) placed duplicate holds on certain mobile check deposits that were deemed suspicious instead of a single hold as intended; (ii) failed to honor a timely stop payment request; (iii) failed to complete error investigations following a consumer’s notice of error because the consumer did not submit an affidavit; and (iv) failed to provide consumers with notices of revocation of provisional credit connected with error investigations regarding check deposits at ATMs.
- Mortgage Origination. Bureau examiners identified Regulation Z violations concerning occurrences where loan originators were compensated differently based on the terms of the transaction. Under the Bureau’s 2013 Loan Originator Final Rule, “it is not permissible to differentiate compensation based on credit product type, since products are simply a bundle of particular terms.” Examiners also found that certain lenders failed to retain sufficient documentation to establish the validity for revisions made to credit terms.
- Prepaid Accounts. The Bureau found violations of Regulation E and EFTA related to institutions’ failure to submit prepaid account agreements to the Bureau within the required time frame. Examiners also identified instances where institutions failed to honor oral stop payment requests related to payments originating through certain bill pay systems. The report cited additional findings where institutions failed to properly conduct error investigations.
- Remittances. Bureau examiners identified violations of the EFTA, Regulation E, and deceptive acts and practices. Remittance transfer providers allegedly made false and misleading representations concerning the speed of transfers, and in multiple instances, entered into service agreements with consumers that violated the “prohibition on waivers of rights conferred or causes of action created by EFTA.” Examiners also identified several issues related to the Remittance Rule’s disclosure, timing, and recordkeeping requirements.
- Student Loan Servicing. Bureau examiners identified several unfair acts or practices connected to private student loan servicing, including that servicers failed to make advertised incentive payments (which caused consumers to not receive payments to which they were entitled), and failed to issue timely refund payments in accordance with loan modification payment schedules.
The report also highlights recent supervisory program developments and enforcement actions, including the Bureau’s recent decision to invoke a dormant authority to examine nonbanks (covered by InfoBytes here).
Nevada Supreme Court affirms ruling in default notice suit
On April 7, the Nevada Supreme Court denied a petition for rehearing and reaffirmed its prior conclusion that, under Nevada law, when a notice of rescission is recorded after a notice of default, the rescission cancels the acceleration triggered by the notice of default, and resets a statutory 10-year period for automatically clearing a lien on real property. NRS § 106.240 “provides a means by which liens on real property are automatically cleared from the public records after a certain period of time,” and specifically “provides that 10 years after the debt secured by the lien has become ‘wholly due’ and has remained unpaid, ‘it shall be conclusively presumed that the debt has been regularly satisfied and the lien discharged.’” The specific question before the Nevada Supreme Court was what effect a notice of rescission has on NRS § 106.240’s 10-year period when the notice is recorded after a notice of default. The Nevada Supreme Court upheld the lower court’s decision determining that “because a notice of rescission rescinds a previously recorded notice of default, the notice of rescission ‘effectively cancelled the acceleration’ triggered by the notice of default, such that NRS 106.240’s 10-year period was reset.”
Arizona establishes mortgage broker provisions
On April 22, the Arizona governor signed SB 1204, which amends state provisions regarding mortgage broker and banker licensing. Among other things, the bill: (i) provides that “a parent company may apply for and be granted a certificate of exemption on behalf of an entity that allows a responsible individual to reside out of state,” as long as certain criteria is met; (ii) establishes qualifications, application, bond, fees, and renewal requirements for licensing of mortgage brokers; and (iii) states that “[a] person shall APPLY for a license or for a renewal of a license in writing on the forms, in the manner and accompanied by the information prescribed by the deputy director.”
HUD announces Massachusetts disaster relief
On April 20, HUD announced disaster assistance for certain areas in Massachusetts impacted by a severe winter storm from January 28 to January 29. The disaster assistance follows President Biden’s major disaster declarations on April 18. According to the announcement, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties effective April 18 and is making FHA insurance available to victims whose homes were destroyed or severely damaged, such that “reconstruction or replacement is necessary.” HUD’s Section 203(k) loan program enables individuals who have lost homes to finance a home purchase or to refinance a home to include repair costs through a single mortgage. The program also allows homeowners with damaged property to finance the repair of their existing single-family homes. Furthermore, HUD is allowing administrative flexibilities to community planning and development grantees, as well as to public housing agencies and Tribes.
HUD offers 40-year mortgage modification
On April 18, HUD issued Mortgagee Letter 2022-07, which establishes a 40-year loan modification as part of the Covid-19 Recovery Loss Mitigation Options. According to HUD, the new option is “designed to help those borrowers who cannot achieve a minimum targeted 25 percent reduction in the Principal and Interest portion of their mortgage payment through FHA’s existing 30-year mortgage modification with a partial claim.” Mortgage servicers may start implementing the new 40-year modification with partial claim option immediately; however, servicers must offer this solution to eligible borrowers with FHA-insured Title II forward mortgages, except those funded through Mortgage Revenue Bonds under certain circumstances, within 90 calendar days. As previously covered by InfoBytes, HUD published a proposed rule to increase the maximum term limit allowable on loan modifications for FHA-insured mortgages from 360 to 480 months. Comments are due by May 31.
States urge CFPB to prohibit mortgage servicers from charging convenience fees
On April 11, a coalition of state attorneys general, led by Illinois Attorney General Kwame Raoul, announced that they are urging the CFPB to prohibit mortgage servicers from charging convenience fees, which the AGs also referred to as “junk fees” or “pay-to-pay” fees. As previously covered by InfoBytes, the CFPB announced an initiative to reduce “exploitative” fees charged by banks and financial companies and requested comments from the public on fees that are associated with consumers’ bank accounts, prepaid or credit card accounts, mortgages, loans, payment transfers, and other financial products that are allegedly not subject to competitive processes that ensure fair pricing. In the letter, the AGs expressed their support for the Bureau’s request for information on the various fees imposed on consumers generally, but called attention to a specific type of fees imposed by mortgage servicers – the “pay-to-pay fees” – which, notwithstanding that consumers can pay using numerous free mechanisms, the AGs find to be “unfair and abusive” to consumers. The AGs called the fees “particularly insidious in the mortgage industry” because, unlike other markets in which such fees are imposed, “homeowners have no choice in their mortgage servicer.” Because of the nature of the secondary mortgage market, homeowners’ expectations of entering into a long-term relationship with their originating institution are misplaced and they cannot know in advance or determine which company will service their loans – even if they choose to refinance. The AGs also warned that the choice to make payments by an alternative method with no fee (such as online or by check instead of over the phone) may be illusory in the face of pending payment posting deadlines and threatened late fees. In such scenarios, the AGs asserted that the convenience fee operates as an alternative late fee “cheaper, but with a shorter grace period, and in contravention to the contractual terms in most mortgages that outline the specific amount and timing” of late fees. The AGs also took umbrage to mortgage servicers charging fees for the very service they are expected to perform, stating that “[t]he most basic function of a mortgage servicer is to accept payments. The concept that a servicer ought to be able to impose an additional charge for performing its core function is fundamentally flawed.”
Ultimately, the AGs suggested that the Bureau prohibit mortgage servicers from imposing convenience fees on consumers, but, alternatively, the AGs encouraged the Bureau to prohibit servicers from charging convenience fees that exceed the actual cost of processing a borrower’s payment. Furthermore, the AGs requested that the Bureau require servicers to fully document their costs supporting the imposition of convenience fees.
The same day, a group of AGs from 16 Republican-led states released a letter, arguing that more federal oversight would be “duplicative or unwarranted,” given that states already regulate many fees for consumer financial products and services. According to the letter, the AGs noted that “state legislatures and regulators have carefully weighed consumer protection interests and the open and transparent operation of markets in a manner intended to deliver the maximum benefit to the interests of their states,” and argued that they “are much better positioned to understand and assess the diverse interests of their states.” In addition, the letter argued that the Bureau has “limited authority to regulate” fees in consumer financial services markets. The AGs mentioned that the Bureau “may seek to use its authority to prohibit unfair, deceptive or abusive acts or practices to regulate fees,” but considered it “unclear” “that fees disclosed in accordance with state or federal law, in some cases authorized by state law, and agreed to by a consumer in writing constitute ‘unfair, deceptive or abusive’ fees, notwithstanding the CFPB’s characterization of some fees as ‘not meaningfully avoidable or negotiable” at the time they are assessed.’” The letter further characterized the Bureau’s approach as “uncooperative,” “top-down,” and “an unfounded expansion of its authority” that may infringe upon state law.
Kentucky enacts mortgage loan industry regulation bill
On April 8, the Kentucky governor signed HB 643, which relates to regulating mortgage lenders. Among other things, the bill: (i) permits employees of a licensee to engage in the mortgage lending process from an alternate location if certain conditions are met; (ii) requires supervision and control of employees acting as mortgage loan originators; (iii) establishes requirements for licensees that allow employees to engage in the mortgage lending process from alternate work locations; (iv) prohibits records from being maintained at an alternate work location; and (v) permits mortgage loan companies and mortgage loan brokers to utilize third-party secure storage facilities if certain conditions are met.